Netflix reported stronger than expected earnings data but its shares are still in correction mode. The company reported earnings per share of 6 cents versus analysts’ expectations of 3 cents while revenue for the quarter came in at $1.96 billion compared to Q1 2015’s $1.57 billion.
Netflix also reported that it gained 6.74 million memberships — 2.23 million in the U.S. and 4.51 million internationally. However its forward guidance for new subscriptions came in below analysts’ expectations, which is probably why the stock’s gains were limited.
Looking at the share’s daily time frame shows that it is still hovering below the 61.8% Fibonacci retracement level, which could continue to hold as resistance. The 100 SMA just crossed below the longer-term 200 SMA to indicate a potential downtrend while stochastic is indicating overbought conditions.
Once the oscillator turns down from the 75-80 area, selling pressure could increase and push Netflix shares to the lows at $80/share. RSI is also turning lower without even reaching the overbought area, also indicating a return in selling momentum.
In addition, the double top pattern on the longer-term time frame is still intact, as price is currently pulling up to the broken neckline. If this area continues to keep gains in check, further declines are likely. However, a break above the 61.8% Fib could put the stock on track towards testing the tops around $130/share.
Netflix said it expected 500,000 net domestic adds and a 2 million net international membership gain. Wall Street had expected 586,000 total domestic net adds, and 3.5 million internationally, according to StreetAccount. “International net adds are down sequentially both due to standard seasonality and our launch in 130 countries at very beginning of Q1 (so Q1 captured the initial surge of signups),” the company’s letter indicated.
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